The current report of the Secretary-General to the Council
(S/1998/823) provides a detailed assessment of the implementation
of the oil-for-food programme  which remains a programme of
unprecedented size and complexity.

I would like to provide you with an update and draw the
Councils attention to some issues which are of particular
concern. In the course of my comments I hope to address some of
the points raised by His Excellency, the Minister for Foreign
Affairs of the Republic of Iraq, in his identical letters dated
23 July 1998 to the Secretary-General and the President of the
Security Council (S/1998/689). We take very seriously the matters
raised in communications from the Iraqi authorities as well as
concerns expressed by members of the Council, regarding the three
northern governorates, where the United Nations is responsible
for the implementation of the programme on behalf of the
Government, pursuant to the Memorandum of Understanding between
the United Nations and the Government.

FOOD

I should like to begin on a positive note. After
a slow beginning, the programme is now delivering significant
quantities of foodstuffs and having a marked impact on the
quantity of food available through the Governments ration
system.

In August and again this month, the food basket will be
complete  providing approximately 2,000 kilocalories per
person per day. Although this is still not enough and is short of
the target set in the enhanced distribution plan (2,300), it
compares very well with levels of 1,400 and less before the
oil-for-food programme began deliveries just 18 months ago.

By the end of August, nearly 6.8 million tons of food worth
$2.2 billion dollars had been delivered. I am able to inform the
Council that these foodstuffs have been distributed equitably by
the Government throughout the 15 governorates in the centre and
south. The Government has handed over the full entitlement to the
World Food Programme for distribution in the three northern
governorates.

Erratic arrivals of foodstuffs have unfortunately continued,
caused by late submissions of applications, inadequate commercial
and financial communications as well as poor performance by some
suppliers in making timely deliveries. Complaints by consumers
about poor quality of supplies have usually been found to relate
to consumer preferences; the overwhelming majority of commodities
have indeed been delivered according to specifications. It should
be noted, however, that the enhanced distribution plan, while
increasing the caloric value of the food basket, is unlikely to
lead to any marked improvement in the quality of foodstuffs
distributed as this would require greater funding at the expense
of other sectors, particularly now that we expect a shortfall in
funding.

MEDICINE

The situation with the medical sector is complex
and far from satisfactory. I accept the criticism from the
Government that the rate of distribution to end users in the
north is low, at just 20 per cent. However, in the centre and
south where the government is responsible, only 16 per cent has
reached end users. Nevertheless, I am not here to get involved in
comparative figures. What we should all be working for is the
benefit of the Iraqi people and to help them meet their medical
requirements. The numbers alone do not tell the whole story and,
in fact, can be misleading.

While there are considerable difficulties involved in the
Governments choice of suppliers, in the erratic arrival of
goods and in the distribution system, it is essential to look
beyond dollar figures. In the northern governorates, the World
Health Organization is showing that it is possible to develop
distribution based on needs and response to demands. The delivery
of drugs and medical supplies to the three northern governorates
has worked well. The automatic allocation of 13 per cent of
supplies delivered to northern Iraq has been replaced by a more
efficient supply system in response to specific demand. The
United Nations observation system will ensure that the overall
health allocation to the three northern governorates is
respected. Drug management issues are also being addressed, both
by WHO and the Government. In the centre and south, WHO is
working with the Ministry of Health to provide advice and
training on drug management issues.

The Ministry of Health, assisted by UNICEF, has undertaken a
review of the Community Child Care Unit system to ensure that
coverage is adequate for the effective distribution under the
enhanced distribution plan of additional nutrition for vulnerable
children. We welcome this initiative. This is, in fact, the first
time the Government has made special provision under the
oil-for-food programme for malnourished children. We also welcome
that the Iraqi authorities have approved a major survey of the
state of the water and sanitation infrastructure, in order to
ensure that the rehabilitation of the network moves beyond
emergency response and is able to focus additional resources in a
prioritized manner.

REIMBURSEMENT

The programme has achieved economies of scale
through the use of bulk purchases by the Government for
distribution in the north. However, the system by which the 13
per cent account for the programme in the north reimburses the 53
per cent account for bulk purchases of food and medicine by the
Government needs special attention in order to speed up the
process  especially as we adjust to the current and serious
shortfalls in oil revenues.

By the end of July, the amount awaiting reimbursement was
$161.4 million dollars. This money was thus not available to fund
other contracts approved under the 53 per cent account. This
figure is unacceptably high and penalizes the 53 per cent account
which covers over 20 million Iraqis in the centre and south. Even
at the end of August, there were 65 applications approved with a
value of $90 million, waiting for funding. This is a cause of
serious concern not only to the Government of Iraq but also to
the Secretary-General and the United Nations system as a whole.
As directed by the Secretary-General, I am considering, in
consultation with the United Nations Controller, various options
to make the necessary adjustments to the current procedures to
reduce the long delays in reimbursements. In this regard, I count
on the full cooperation of the Security Council Committee (661
Committee) in order to find an appropriate solution.

AGENCY PERFORMANCE IN THE NORTH

Council members may recall my briefing in July
following my visit to Iraq. At that time, I noted serious
concerns about the performance of some agencies responsible for
implementing the programme in the north.

I am pleased to inform the Council that since then the United
Nations system has been taking urgently the necessary measures,
both at the headquarters level and in the field, to speed up the
pace of the implementation of the programme in the north. The
implementation of the measures are closely monitored by the
Office of the Iraq Programme in full cooperation with the
agencies and programmes concerned.

In July, I was particularly critical of the lack of activity
in the electrical sector. For the past several weeks, officials
from my office and UNDP and DESA have been meeting regularly to
find ways of accelerating implementation. There have been some
early results. Exceptions were granted to ensure emergency
procurement to enable repairs to the Derbandikhan Dam  an
issue I had highlighted in my last briefing. Engineers are
currently at Derbandikhan preparing for work to be carried out
when water levels are at their lowest, from October to December.

Although we are working to improve the power generation
situation in the north, we should all recognize that the system
is in such a state of decay and disrepair that major sections
could collapse at any time. The situation is far beyond the
available expertise or resources of the local authorities or the
funding available to this programme. The best we can hope for is
to make the system somewhat more reliable and reduce the
potential for dangerous accidents.

This and other cases over the past eighteen months have shown
us that the regular procedures and practices of the United
Nations are not well suited to an operation of this size and
complexity. This programme requires improved management,
complemented by new procedures, principally outsourcing, for the
procurement of equipment and recruitment of short-term
international staff. We will take all necessary measures to
ensure that the work plan is fully implemented on a timely basis.

The recent offers of assistance from the Government are a
welcome sign of a more cooperative attitude in the electricity
sector. As is well known, this sector has been highly centralized
and there is need for full cooperation in implementing the
programme in the north. Our experts have been directed to fully
consult with the Government. However, under the Memorandum of
Understanding, the responsibility for implementation of the
electricity programme remains with the United Nations.

PRIORITIZATION

The Secretary-Generals report confirms that
oil revenues during this 180 period will fall far short of the
$5.2 billion authorized by the Council in resolution 1153(1998).
The consequences for the humanitarian programme are obvious --
instead of $3.1 billion dollars required for the implementation
of the enhanced distribution plan, it is estimated that a net
amount of approximately $1.79 billion will be available.

We have already begun discussions with the Ministry of Foreign
Affairs on how to prioritize further within and among the
different sectors in the enhanced distribution plan for the
utilization of the limited resources. In New York, my Office has
been meeting with the Permanent Mission of Iraq on a regular
basis on this issue.

The agencies implementing the programme in the north have
already revised the scope of their activities in consultation
with the local authorities.

OIL SPARE PARTS

The shortfall in revenue results from the
combined effects of the low price for oil on the international
market and the limited pumping and export capacity of Iraqs
oil industry. This problem has been highlighted by the
Secretary-General and recognized by the Council in its resolution
1175 (1998) authorizing the purchase of spare parts for the oil
industry.

On the part of the Secretariat, we have already established
the monitoring system for oil spare parts and equipment. A
separate database has been established to track the approval,
delivery and end-use of the spare parts, as described in the
paper I submitted to the 661 Committee in June. An accounting
mechanism has been set up for the joint funding of the contracts
for spare parts for the 13 per cent and 53 per cent accounts.
Experts from Saybolt have visited New York to assist our customs
officers with the processing of complex contracts for oil spare
parts, and a mechanism has been set up to allow for rapid
technical consultations, as necessary, between the Contracts
Processing Section of OIP and Saybolt.

Although Iraq has increased its production of oil through the
first months of the current phase, the oil overseers have advised
that Iraq is informing its customers that contracts for the sale
of oil during the second half of the current phase will have to
be reduced by an average of 10 per cent. The reason given is the
lack of oil spare parts.

As of today, we have a total of 55 contracts for the sale of
oil reviewed and approved, involving purchasers from 21
countries. The total quantity of oil approved for export under
these contracts corresponds to approximately 316 million barrels
for 180 days - the highest amount since the beginning of the
programme. As stated in paragraph 2 of the report of the
Secretary-General, the average quantity of oil exported from Iraq
has increased from 1.44 million barrels per day during the
previous 90-day period, to 1.7 million barrels per day during the
current reporting period. Although todays price of oil has
gone up a little to $10.70 per barrel, there is no guarantee that
it will stay there or go up any further. Currently, there is a
glut of oil in storage worldwide.

We have repeatedly emphasized the need for speedy approval of
spare parts. The views of the Secretary-General on this question
are clearly stated in his letter dated 15 April 1998, addressed
to the President of the Council (S/1998/330).

As of today, we have received 67 contracts for oil spare parts
and equipment, at a total value of $79.8 million, of which 52
have been circulated, 19 approved, and 22 applications have been
placed on hold. Some of the contracts which have not been
circulated yet are still awaiting further clarifications by the
suppliers. The pace of submission of applications to the
Secretariat depends not only on the rate of contracts signed by
the Government but equally and very importantly, on the speed of
submission of the applications by the suppliers through their
respective permanent and observer missions. For contracts placed
on hold, the reason cited has most often been that the
"purchase is not directly related to the repair of the Iraqi
oil infrastructure for the purpose of increasing exports."

This is a crucial issue which needs urgent resolution. At the
request of the Committee, Saybolt experts briefed the 661
Committee last week; they responded to a number of questions
regarding the distinction between requirements for upstream and
downstream operations. They stated that a rigid division between
"upstream" and "downstream" operations is not
helpful. They told the Committee that parts considered for
"downstream" are, in some cases, needed to enable the
industry as a whole to operate safely and efficiently, to sustain
current rates of production. They also reiterated what they had
stated after their mission to Iraq, on the urgent need for spare
parts and equipment to provide the minimum levels of worker
safety and environmental protection.

Having authorized the increase in the funding level of the
programme for the benefit of the Iraqi people, having recognized
the urgency of the need for spare parts, the Security Council
Committee members are urged to proceed most urgently with the
approval of contracts on spare parts. With oil prices so low,
with expected revenues far below the minimum requirements for the
implementation of the programme, unless spare parts and equipment
are approved most expeditiously, the credibility of the programme
will not only be affected adversely, but may also jeopardize the
effective implementation of the programme.

The implementation of the enhanced programme requires an
enhanced capacity of production and export of oil.

TELECOMMUNICATIONS

As stated in my letter dated 29 May 1998
addressed to the Permanent Representative of Iraq (S/1998/446,
annex I), while the Secretary-General recognized that there may
well be a need for telecommunications improvements to facilitate
the distribution of humanitarian supplies exported to Iraq, the
Secretary-General will await the outcome of a joint technical
review by United Nations experts and the relevant technical
ministries of the Government of Iraq before taking a decision on
the proposals contained in the enhanced distribution plan. The
group of experts sent to Iraq has just concluded its work and its
report is being studied.

VISAS

As stated in the report of the Secretary-General,
we have had good cooperation with the Iraqi authorities. We have
had, however, some difficulties in the speed with which entry
visas are granted. We have repeatedly drawn to the attention of
the Government of Iraq that pursuant to the relevant provisions
of resolution 986 (1995) and the Memorandum of Understanding,
United Nations officials, experts and other personnel referred to
in paragraph 45 of the Memorandum of Understanding shall have the
right of unimpeded entry into and exit from Iraq, and shall be
issued visas by the Iraqi authorities promptly. I regret that we
have been experiencing serious delays in some instances as well
as a refusal to grant visas to some experts, which have been
affecting adversely the pace of the implementation of the
programme, in particular in the north where we have had
difficulty getting experts in to install equipment. We are
currently reviewing the matter with the authorities concerned and
I remain confident that we will be able to resolve the
difficulties involved, particularly bearing in mind the fact that
some of the delays are, in my view, due mostly to
misunderstandings.

IMPACT

The overall implementation rate of the programme
stands at 58.23 per cent for phases I through III combined.

Assessing the impact of the programme is far easier in the
three northern governorates than in the centre and south where we
have been unable to receive detailed information on the inputs
provided by the Government.

In the centre and south, our observers can assess only the
extent of the deliveries and how far these conform to the
allocation plans of the ministries concerned. While it is
possible to assess some local impact, this does not always
translate into sustained or widespread improvements in services
to the general population.

With regard to the nutrition sector in the three northern
governorates, the fact that the United Nations insisted on
funding targeted nutrition activities since the start of the
programme has now begun to have a measurable impact. A very
important contribution to the availability of increased food in
the north has been the agricultural programme. FAO impact
assessment indicates increased yields, greater crop protection,
reduced animal disease, lower meat and milk prices, and a
generally depressant effect on the local market for agricultural
inputs. As to health care, the greater availability of drugs and
medical supplies has enabled health facilities, in the main, to
progress from a rationing system towards one which will operate
on the basis of supply-on-demand. This is due to the effective
cooperation between Kimadia (the Iraqi State Company for
Importation of Drugs and Medical Supplies) and WHO in devising a
more efficient provision of supplies than set allocations applied
throughout the country.

When I was there in July, the local authorities were unanimous
that, thanks to this programme, the average Iraqi in the north
now had more regular and reliable access to food and medicine
than before.

I am very aware of the need for improving our observation and
reporting capability and have already taken steps by recruiting
more specialized geographical observers, and have put greater
emphasis on our ability to assess and analyze the impact of the
programme.

CONCLUDING REMARKS

Official reports inevitably tend to focus on the
accountancy aspects of the programme - barrels per day, revenue
generated, funds disbursed, goods delivered and distributed. But
in this programme, the United Nations is working with the
Government to address the complex needs of an entire population
within the context of a comprehensive sanctions regime. Food and
medicine are important, but need to be provided together with
clean water, safe sanitation, and reliable electrical power and
decent educational facilities  all rightly given additional
emphasis in the enhanced distribution plan.

I have outlined some of the progress made and the serious
difficulties still to be overcome if the aims of the programme
and the reasonable expectations of Iraqs people are to be
met. However, the United Nations observation mechanism has
reported some improvements in the situation throughout Iraq, not
just in the northern governorates, with regard to nutrition and
the availability of medicine. I am pleased to conclude my
statement by noting that despite all the difficulties encountered
in the implementation of the programme, and irrespective of what
has been said by all concerned, there can be no denial that the
986 programme has indeed made a positive impact on the living
conditions of the Iraqi people.

I wish to take this opportunity, on behalf of the
Secretary-General, to thank the Council, as well as the Chairman
of the 661 Committee and its members, for their continuing
support and cooperation with the programme.